July’s stock market rally continued in the first half of August; however, volatility picked back up over the last two weeks of the month and the S&P 500 finished down about 4% for August.  That leaves the index down roughly 17% for the year. (YCharts) 

Once again it was inflation and the Fed that moved markets throughout the month with  better-than-expected inflation numbers driving the early rally, before concerns over a slowing economy were driven by Fed Chair Jay Powell’s speech later in the month. Next month, investors will again be watching inflation data carefully, and what it means for Fed policy, as the Fed is poised to raise rates in September: currently expectations are for a hike of 0.75%. (CME FedWatch Tool)

The challenging first half of 2022 is now in the books as the S&P 500 dropped roughly 8% in June bringing the year-to-date return to about -20.5%.  While stocks struggled, they were not alone, as most asset classes have been negatively impacted this year, including fixed income, with the US Aggregate bond market down about 11% for the year.

The good news is that we made changes to portfolios in April to manage risk due to the fact that we felt the chances of recession were rising.  Thus far, that change has been a good one for portfolios and we continue to have a portion of our growth portfolios defensively positioned today. 

The volatility we’ve seen since the beginning of the year continued in May as stocks alternated between strength and weakness, with the S&P 500 closing the month almost unchanged.  One piece of positive news for many investors was that the bond market stabilized with the Bloomberg Aggregate Bond Index up roughly 1% for the month after seeing losses in the first four months of the year. (YCharts)

We made changes to our portfolio positioning in mid-April in an effort to reduce risk within the growth portion of accounts.  While this defensive shift has worked well so far, we continue to monitor current economic and market conditions for potential changes.  As we look to the next 6-12 months, recession risks have risen but our economic dashboard does not yet signal that a recession is imminent.

April was another challenging month for investors as the S&P 500 was down almost 9%, while bonds also struggled as the Bloomberg US Aggregate Bond Index fell about 3.5% (YCharts).

March was another volatile month for stocks as the S&P 500 pulled back at the beginning of the month before rallying nicely to finish the month up 3.58%. 

We believe that this back-and-forth volatility has been driven by three main factors: 

February was a challenging month for stocks as the volatility that arrived in January continued with the S&P 500 finishing the month down 3.14%.  Investors were focused on the potential impact of uncertainty in the markets; primarily, the Russia-Ukraine conflict, Federal Reserve policy, and inflation. 

The recent invasion of Ukraine has led to a lot of questions about what investors should do right now.  This invasion is clearly a major geo-political event and a humanitarian crisis for the people of Ukraine.  Moving forward our job is to think about how this event may impact the economy and markets and position portfolios accordingly.  With that in mind we’re going to review a few key things to consider:

We hope that your year is off to a great start!  The stock market has certainly kept us on our toes to start the year.  January brought with it some volatility as stocks pulled back to begin the year, with the S&P 500 ending the month down about 5%. (YCharts)

In our annual outlook that we published late last year we highlighted a few key themes to watch including inflation and monetary policy. We didn’t have to wait long for these factors to impact markets as we saw the following developments:

TLWM Financial – 2022 Outlook

At TLWM, we believe that both stocks and bonds play an important role within portfolios. In this post, we’re going to focus on the role that bonds play.